Inventory Allocation: Omnichannel Demand Fulfillment with Admission Control

Abstract

Ensuring the profitability of retailers utilizing in-store inventory for online fulfillment is a pivotal issue in omnichannel retailing. This study examines the inventory allocation challenges faced by retailers when managing interactions between online and offline channels to identify strategies that maximize revenue. The findings enable retailers to address key operational conflicts while implementing omnichannel strategies. We develop an omnichannel newsvendor model, deriving an optimal strategy for retailer inventory level and online acceptance thresholds, demonstrating the economic superiority of this approach over traditional policy. Furthermore, this paper further explores how carry-over inventory influences strategic decisions, particularly in quantifying the trade-off between the cancellation cost and the inventory holding cost. The results reveal that cancellation costs incentivize retailers to increase safety stock and reduce online acceptance thresholds, with strategy sensitivity intensifying as offline demand dispersion grows. Compared to the traditional policy, our policy demonstrates superior performance when the cancellation cost remains below a critical value, though its effectiveness decreases under high offline demand dispersion. Moreover, dynamic strategy adjustments must balance the cancellation cost against the holding cost in the carry-over scenario. The proposed framework systematically integrates inventory allocation with demand admission control, addressing a critical gap in existing literature that has failed to comprehensively link these two operational levers. This dual-focused perspective significantly advances omnichannel inventory management theory.